Hurdle Rate
The hurdle rate is the minimum return that an investment must achieve to be considered viable. It acts as a benchmark for evaluating investment opportunities, ensuring that only those with sufficient potential returns are pursued. This rate is critical in performance-based compensation structures, where fund managers must exceed the hurdle rate to earn incentives such as carried interest.
Key Takeaways
- Minimum return required for investment viability.
- Used as a benchmark for evaluating opportunities.
- Critical in performance-based compensation.
- Common in private equity.
